press release

ICYMI: New GAO Report Finds Regulatory Uncertainty Pushed Banks Out Of Small Dollar Lending Market


A new bipartisan report from the U.S. Government Accountability Office (GAO) found regulatory uncertainty around small-dollar loans served as a significant impediment towards banks’ ability to offer these products. The report, commissioned by U.S. Senators Gary Peters (D-MI) and Mike Rounds (R-SD), reaffirmed CBA’s longstanding position that excessive and ever-changing regulation stifles innovation and product development, ultimately harming consumers’ access to credit and other products that provide an emergency financial safety net in times of need.

Recognizing the significance of the report, CBA President and CEO Richard Hunt explained:

“When 6 in 10 Americans cannot afford an unexpected $1,000 expense, many hardworking families rely on short-term liquidity products to meet an emergency need. Unfortunately, too many regulatory pressures have forced banks out of this marketplace and consumers to satisfy their needs from payday lenders and other less-regulated venues. CBA is appreciative the GAO reaffirmed our longstanding position on this issue and will continue to advocate for policymakers to implement needed policy changes aimed at protecting access to affordable credit for consumers.”

The Findings

The report examined the impact of regulatory action related to small-dollar loans from the Consumer Financial Protection Bureau (CFPB), Federal Reserve, Federal Deposit Insurance Corporate (FDIC), and Office of the Comptroller of the Currency (OCC) from 2010-2020. As the GAO stated, more than 19 actions were taken among these four regulatory agencies over the past decade, resulting in heighted uncertainty for banks:

“Banks are hesitant to offer such loans in part because of changes to related rules or guidance in recent years. In particular, some market participants and observers noted that banks do not want to offer small-dollar products because they are expensive to develop, and the regulations or supervisory expectations may change.”

Specifically, the GAO report highlighted the impact of supervisory guidance issued by the OCC and FDIC in 2013 on deposit advance products. While the guidance was intended to encourage banks to apply more scrutiny in underwriting and to discourage repetitive borrowing, the GAO ultimately found:

According to representatives of the Consumer Bankers Association, OCC and FDIC’s 2013 guidance were restrictive, which made it difficult for banks to offer deposit advance products. Representatives from one bank told us [they] stopped offering advances on direct deposits in 2014, following OCC’s new guidance.”

As the GAO concluded, not only has misguided regulation already forced many banks out of the small-dollar lending market, more recent efforts aimed at encouraging financial institutions to develop these products have only yielded further uncertainty and hesitation for banks, moving forward:

Despite these actions by the regulators, some market participants and observers said regulatory uncertainty remains among banks. […] Some market participants and observers […] including four banks, had concerns that the current guidance did not provide clear guidelines for banks that would shield them from regulatory risks.”

To read the full report, click HERE.

About the GAO

The U.S. Government Accountability Office (GAO), often called the “congressional watchdog,” is an independent, non-partisan agency that works for Congress. GAO examines how taxpayer dollars are spent and provides Congress and federal agencies with objective, non-partisan, fact-based information to help the government save money and work more efficiently.

CBA Advocacy

For millions of hardworking families, small dollar loans, credit cards, overdraft, and other innovative bank products provide affordable credit options they rely on to meet their financial needs, including covering emergency expenses. CBA long has advocated for policymakers to protect access to these short-term liquidity products within the well-regulated, well supervised banking system, including the following recent actions related to:

  • Small Dollar Lending: Through a dedicated Small-Dollar Working Group, CBA’s Deposits & Payments Committee has engaged with the CFPB and other federal regulators as they developed numerous rules related to small-dollar loans over the past decade. In March 2020, after policymakers jointly encouraged banks to make small-dollar loans available to consumers, CBA applauded leading regulators for providing banks needed flexibility while also calling for clear guidance in the future.
  • Overdraft: Ahead of a House Financial Services Subcommittee hearing examining the overdraft marketplace earlier this month, CBA submitted written testimony highlighting the bank-led overdraft innovations designed to meet evolving demand and cautioned against restricting a product millions of consumers knowingly use and value in times of need. To read the letter, click HERE.
  • Arbitrary Rate Caps: In July, CBA General Counsel and Senior Vice President, David Pommerehn testified before the U.S. Senate Banking Committee on the impact new caps on interest rates would have on access to credit for low- and moderate-income communities. To learn more, click HERE.


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